If you are wondering how to create a corporation in California, this guide might be what you are looking for.
Start by naming your corporation.
This might sound like an effortless fun first step when forming a corporation, but it is not as simple as it seems. First off, the name of your corporation should not be the same as, or too similar to, an existing name on the California Secretary of State’s records. You can search through the Business Search Database (for free) to verify that the name you have chosen is in no way similar to any other Californian corporation. You may also mail a completed Name Availability Inquiry Letter to the California secretary of State’s office. Also, the chosen name should never be misleading in any way to the public. This name may contain the words “Limited”, “Corporation”, “Incorporated” or their respective abbreviations.
Once you find a name that is applicable, you can reserve it for 60 days by filing a Name Reservation Request Form with the Secretary of State. This form can only be handed in by mail or in person.
Next, file your articles of incorporation. To formally establish your corporation, you must file the Articles of Incorporation-General Stock (form ARTS-GS) with the California Secretary of State. These articles must include:
- Name,
- Address,
- Name and address of the agent for service of process, and
- Numbers of shares the corporation is authorized to issue.
The articles on the Secretary of State’s website include a broad purpose statement. As with the filing a Name Reservation Request Form, you must also file through mail or in person with a $100 fee.
Be sure to appoint a registered agent. A registered agent is an individual or corporation that agrees to accept legal papers on the corporation’s behalf if it were to be sued. The agent may be either a natural person who resides in California or a corporate agent with a Registered Corporate Agent for Service of Process Certificate (form 1505) with the Secretary of State.
Every single Californian corporation must have an agent for service of process. It is prohibited for corporation to service as its own agent and this agent must agree to accept service of process on your corporation’s behalf prior to their designation. This agent must have a physical address in California; a post office box is not permitted.
It is habitual for a small corporation to name its director as the initial agent, with the possibility of changing the agent at another moment if it seems fit to do so. If you wish to have a corporate agent, you may search the list of private service companies that act as an agent for service of progress the Secretary of State maintains; however not every company is on the list.
Continue by having your corporate bylaws ready. A bylaw is an internal corporate document that is created to regulate the corporation itself. It sets the basic ground rules for operating your corporation. Even though a corporate bylaw is not legally required by the state, almost all companies have them because it established your company’s rules and it demonstrates to suppliers, banks, IRS and other that your corporation is legitimate.
The next stop is to appoint the corporation directors. The person responsible for signing the bylaws (known as the incorporator) must also appoint the first board of directors. This is done by writing the incorporator statement; a formal document introducing the name of the members of the board and their respective address. Once written and signed, this document is placed in the corporate records book. Just like the bylaws, this document is not legally required and it does not need to be filed with the State.
Once the board of directors is formally introduced, for their first meeting they need to adopt bylaws, authorize issuance of shares of stock, select a corporate bank, appoint corporate officers, adopt an official stock certificate form and corporate seal and set the corporation´s fiscal year. The directors´ actions must be documented in corporate minutes prepared by the incorporator or the board’s secretary. Additionally, if the corporation will be an S Corporation, the directors should approve the election of such status.
When the board’s first annual meeting of shareholders is celebrated, the shareholders could elect a new board of directors.
In return for their capital contributions, the corporation must issue stocks to the shareholders. When the corporations are small, they usually issue paper stock certificates to the stockholder. To maintain control, you should enter each shareholder’s name and contact information in the corporation’s stock transfer ledger.
Unlike other states, Californian corporations are under no obligation to establish a par value for their stock – which means that the stock cannot be sold under a set amount. Also, the board sets the value and quantity of the initial shares.
A share of stock in your corporation is classified as a security under state and federal securities laws that regulate the offer and sale of corporate stock. Nevertheless, “private offerings” are exempted by federal law. A private offering is a non-advertised sale to a limited number of people (generally 35 or fewer). As a result, if you are issuing stocks to fewer than 35 people, you don’t have to worry about federal securities laws.
The federal exemption varies by states. To claim a limited offering exemption under state law in California, you must file a Section 25102(f) Notice filing – Limited Offering Exemption Notice (LOEN) with the California Department of Business Oversight. You should file the notice within 15 days after your corporation issues stock with a filing fee between $25 to $300 USD.
Filing a Statement of Information is a required by law for any corporation, local or foreign, registered in California. The filing has to be done within 90 days after filing the Articles of Incorporation and every year subsequently during the applicable filing period. The filing period is the calendar month during which the original Articles of Incorporation were filed and the prior five calendar months
California corporations must file a Form SI550. You can file online, through mail or in person with a $25 fee.
All corporations, local and foreign, doing business in California must pay Californian taxes to the California Franchise Tax Board (FTB). For new corporations that qualify or incorporate with the Secretary of State, the tax is measured based on their income for the first year and subject to estimate requirements. An $800 annual minimum tax must be paid during the first quarter of each accounting period no matter what situation the corporation has, whether active, operating at a loss or not doing business. For all following years, the minimum tax is $800. If the corporation has an income over a certain amount, it must pay an additional fee based on their total annual income.
As for regulatory requirements, the corporations must file California Form 100, Corporation franchise or Income Tax Return, by the 15th day of the third month after the close of their taxable year. Corporations that have elected to be taxed as S corporations file Form 100S, California S Corporation Franchise or Income Tax Return. If the corporation wants to elect S corporation status for tax purpose, it must submit Form 2553 Election by a Small Business Corporation (signed by all the shareholders). The election should be files within two months and 15 days after the beginning of the corporation’s first tax year.
Your corporation must also obtain a Business License as well as an employer identification number (EIN). All corporation must acquire a general business license from the city where it has its office. If your corporation is in an unincorporated area, your county issues the license. Depending on its type of business and where it is located, your corporation may need to obtain other local and state business licenses.
As for the EIN, you may obtain it by completing an online application on the IRS website. Although there are no filing fees, a California corporation becomes subject to the state’s payroll tax requirements if it pays wages of over $100 in any calendar quarter. This rule applies even if the corporation functions without any employees except for the corporate president. The California Employment Development Department issues employer account numbers (sometimes called state employer identification numbers or SEINs) and administers California’s payroll taxes, including Unemployment Insurance, employment Training Tax, State Disability Insurance, and California Personal Income Tax withholding.
Foreign Corporations Doing Business in California.
All corporations organized outside of the state must register with the Secretary of State if they plan on doing business in California. Like any other corporation, the foreign corporation must follow all the steps mentioned before to properly operate in California.
Nevertheless, if the name of the foreign corporation is not available for use in California, the corporation must qualify under an assumed name – a name other than the true corporate name. List the assumed name in the statement.
The complete form must be accompanied by a certificate of good standing from the foreign corporation´s home state, dated not more than six months prior to the filing of the statement.